For the first time, the Financial Stability Board (FSB) has sought views on a specific financial activity that may pose so much risk that it could warrant global standards. The business line – exchange-traded funds (ETFs) – has yet to trigger U.S. scrutiny, although money market funds (MMFs) are under active consideration for designation as a systemic activity under the Dodd-Frank Act. FSB data included in this paper indicates that ETFs are, as yet, a relatively small percentage of financial-market activity and, beyond that, problematic ETFs (those that are complex, leveraged and/or synthetic) are to date also a small fraction of total ETF volume. Still, the FSB believes that these funds pose so much risk – in large part because of the role banks play in them – that industry and regulatory intervention should begin.
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